The key to a good retirement plan is in your mind’s eye
Visualization is a deceptively valuable financial tool. It can take your mind to a future time, then retrace the steps on how you got there. Along the way back to your current reality, it can illuminate the risks that line your path to financial independence.
Begin by picturing yourself five years into your retirement. How old are you? Where are you? The answers to those two questions can provide enough financial homework for the next few years of your current reality.
I got to chatting with a manufacturing executive the other day, and I realized that his use of visualization may have saved his retirement aspirations. His name was Gary, and he was the highestpaid person at his company in a midsize town in the South. He lived in the nicest neighborhood in town, filled with executives from a few different manufacturing facilities. His $450,000 home, which he owned outright, was one of the highest-priced homes in a three-county radius.
“I hustled to pay off my house, just like you’re supposed to. But then I realized that I had no earthly intention to retire in this town,” Gary told me.
Gary had a pension and a healthy 401(k), but a major retirement threat was looming. There had been whispers that the other two plants in town were struggling. If the plants dried up, so would the high-end real estate market.
Compounding his concerns were fears of rising mortgage rates. If money were more expensive to borrow, even fewer people would be able to afford one of the highest-priced homes in his area.
“As I was visualizing living in another part of the country, I asked myself what could possibly derail my plans. ... My house was a huge liability. If I can’t sell my house, then I either settle for a retirement I don’t want, or I lose tens if not hundreds of thousands of dollars.”
What Gary found was something too many of us will learn the hard way — threats to our retirement goals can take on many forms. Can you imagine if your retirement took a left turn because a company you don’t work for goes out of business in your town? Gary and his wife were all of a sudden at the whim of seemingly unrelated economic forces.
“My wife and I decided to become renters,” Gary announced with glee. They placed their home on the market, searched out a few potential rental homes and then put together a plan to grow the proceeds of their home tax-free for the next five years. After factoring in the elimination of property taxes, high utility costs and a few other expenses, Gary’s rent will only increase his net expenses about $400 per month. Not bad when you consider what’s at risk.
Visualization let Gary and his wife eliminate a gigantic risk, before the risk materialized.
We are vigilant of how many nuts we’ve put in the tree. We stare at our portfolios and obsess over our returns. But we often ignore gigantic financial forces such as real estate and health care expenses, which can easily displace even the best retirement income plan.
Visualizing what our lives will be like five years into retirement, walking our minds backward and asking questions along the way can help ensure that the secondary and tertiary aspects of retirement don’t ruin our retirement. It’s quite possible your biggest retirement threat has nothing to do with your investments.
We stare at our portfolios and obsess over our returns. But we often ignore gigantic financial forces that can easily displace even the best retirement income plan.